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Earnings season is slowly getting underway with two of the big cap Service players having reported and providing no surprises on the 2025 outlook. We get more Service and some Majors in the coming week. Please see our preview of the coming week's reports in the Friday post and our Calendar here.
Holdings Watch:
- We continue to slowly add to positions in the new portfolios.
- All three portfolio trade blotters are updated in the Z4 Portfolios link above.
Questions about the site may be directed to zmanalpha@gmail.com
Questions and comments under The Wrap will be addressed in the Monday post.
Have a good weekend,
Z
Production on Friday was 103.3Bcfgpd according to BNEF.
The coming week’s energy earnings previews have been uploaded to the Calendar page.
https://zmansenergybrain.com/subscriber-data/calendar/
Circling back to your questions/comments about PED. For ’25 production I’m using the previous estimate from the analyst(s), 2,340 boepd I believe. I see that that has come down a bit, but my # is close, “close enough for government work” as they say. Using my number and using a netback figure of $46/boe, and assuming they chew through their cash balance this year by outspending their cash flow by that much $, I get an EV/EBITDA figure of 2.3X, not all that far from yours after adjusting for the slightly higher production I’m assuming.
I get it that these tiny companies with a miniscule public float will never get the same multiples as the larger companies. No matter how much the institutions might like the story, they can’t touch the stock because they would move up the bid too much in getting into even what would constitute the minimum size position for them, and then they stand the risk of it becoming a “roach trap stock” if things don’t turn out positively. So the question then becomes, is the company doing anything to try to improve this situation?
From everything I’ve seen them do over the last several months, they have checked all the boxes on how to become a bigger company, IMO:
1) Got their first RBL. Even in the good old days, getting your first RBL was difficult. Given the fact that far fewer banks are in the RBL business these days, the task is now monumental. The fact that they got this line speaks wonders of the quality of the company’s assets, IMO. Citibank has basically done our due diligence for us here.
2) Kukes, whose background appears to mostly be in finance, finally agreed to let a real oil & gas guy, Schick, take the reins. This was a great move not only from an optics level but also I really believe that an oil and gas type guy is most qualified to be company CEO at this point.
3) The company has set up an ATM equity raise deal with Roth. This is great because it will get some more dearly needed shares in the float. I’m presuming that they will utilize this at the right time (i.e. after they put out good news, put out a revised company presentation, etc). When we look at what happened to the stock over last year, we see that the market responded quite well to each of these kinds of events.
So taking all the above into account, I believe the company is set up for some EV/EBITDA multiple expansion in the coming year or 2. In the meantime, the company just keeps banging out 30-40% production increases every year, with only a relatively modest outspend of cap ex over cash flow. There are not a helluva lottta companies doing that sorta thing these days.
Sorry for the long-winded post!
Thanks – will address Monday post.
Appalachia-Midcon player Diversified Energy in talks to buy private Maverick Resources for $1.3 B.